As data becomes more widely available, underwriters may have more information to select and price the business they are taking on, but they don't have more time.
Matthew Grant spoke to Richard Hartley CEO and co-founder of Cytora about how the company has grown since 2014, the challenges of being a founder and how the company helps insurers identify and focus on the accounts that are going to be more profitable. Topics included:
- Finding investors as a start-up and scale-up
- The challenges of building a team as the company evolves
- Cytora's clients
- Distributing through other platforms
- The role of accelerators and incubators
What was your motivation for founding Cytora?
We saw a huge technological opportunity in using unstructured data to predict and prevent events in the physical world. Originally, we saw this ability to mine data and predict macro events like revolutions, rocket launches, all sorts of things.
We saw insurance as having the most addressable market opportunity in terms of the willingness of customers to solve this problem for them.
You identified that data was becoming really important but hadn’t worked out a specific use case to solve. How did that affect the search for early funding?
We didn’t know a lot about the commercial world or insurance. Where we did have authority and passion was technology. We incubated at Cambridge and became the first Insurtech company to raise money from the university, and grew from there.
As we learned more about the industry, we became obsessed by insurance. Our early customers, of which XL Catlin was one, gave us the market knowledge to build a valuable product.
Why do you think Cambridge Enterprise invested in you?
Initially, it was the passion we showed for what we were doing, and our group had a unique set of skills. The fact that my parents lived in Cambridge also meant we had access to a great university, VCs, investors, just walking around those streets. That density of capital, talent and knowledge really helped propel us in those early years.
Of that original group of four founders, there's now two of you. How do you handle that situation where people want to go a different way in the early stage of the company?
No one really knows how long they'll go into a company for. There are examples of founders who stay too long and examples the other way, where companies need founders longer into their trajectory.
We're still on really good terms. We thought about what Cytora needs to be successful in this next stage. That's actually how I think about my role as CEO at each new stage, "am I the right person to be in the business?"
Were you given advice on how to structure the company, so that an amicable separation would be relatively straightforward?
We had a good leaver and bad leaver provisions set up to make it possible for a founder to step away and still maintain their shares. That's important because it's impossible to foresee what might happen and you want to create the right incentives, where founders will always seek what's best for the company, not what's best for them.
QBE and Starr were two of your early investors and also clients. Do they still provide strategic support?
That was the key reason why we decided to work with them. It was driven by the desire for more market knowledge and a deeper appreciation of the business problems that existed inside insurance. That's very hard for companies of our type to get because they often see insurance from the outside.
QBE and Starr really accelerated that knowledge for us. We've expanded our relationships in different ways, and they continue to see us as a strategic partner for their shift towards becoming more tech-enabled businesses.
You had a lot of interest in your last funding round. Why did you choose EQT over other investors?
EQT had a very definite thesis on insurance - that it’s one of the last big verticals on the verge of adopting technology and will undergo massive shifts, and that really converged with ours.
The fact EQT has $61 billion under management also means they're a long-term partner who can help us grow, not just in the Series B stage but way beyond that.
Like a lot of early-stage companies, you've had quite a bit of turnover. Has that been an issue or just a natural stage of evolution?
It's a natural stage of evolution. Sequoia Capital made the point that successful companies often churn their leadership team three times through their lifecycle. Loyalty is important but at the same time, you have to be pragmatic and think, "if we're scaling into the US, who's done that before? Who has the expertise?"
You need the right complement of continuity, background and experience so you're not doing everything through trial and error. We build our teams in a very complementary way, so we have the right people at any one time.
How do you distinguish yourselves from other companies who also claim they can pull data from the internet and create analytics for insurance?
You have to do something else with the data. You have to build a derivative data set on top of the data you're acquiring, which is proprietary, and use that to derive more value from the product. At the same time that you're providing business value, you focus on building an impossible to replicate product.
At Cytora we're focusing on last mover advantage. We don't necessarily want to be first, but we want to be the last person to bring a major innovation to the market.
How do you find getting access to data in the UK versus the rest of the world?
There's a lot more data becoming available in all countries, but there's always a level of asymmetry. Some countries have a certain type of data and others don't, but in net terms that's radically increasing because the cost of generating data is going down.
In the next 10 years, we'll see a huge proliferation of data and that's a challenge for insurance companies to work out. We hear this a lot when companies have a raft of data providers to work with, but they want a partner who can help them use it in their particular workflow.
Is there a lot of diversity in the market between companies who think they can source the data and do the analysis themselves, versus those that want to buy the analytics from third-party providers like Cytora?
There's definitely a difference. The majority of insurance companies haven't made the internal investments yet in this area and don't see it as their core area of expertise.
They see their core as their ability to price risk, the actual inputs to that prediction process of acquiring the data and building the models. That's where a lot of our customers have come from.
What examples can you give us where underwriters are doing something very different in their workflow because of what you're providing?
With our help, underwriters can focus on risks that are profitable, risks that are in their appetite, and risks they believe they can win. This is typically known as submission triage, which queues submissions on an attractiveness basis.
Previously, underwriters used to spend the same time on every submission, but only win a small proportion of them. Now they can concentrate on the most attractive ones. We've seen that with our customers, and that's measurable and quite meaningful.
Are you able to get loss data back from the insurance companies to help calibrate the models?
We regularly measure whether the loss ratios of our customers are improving, and we've had positive results through years of underwriting cycles.
At the same time, we’ve realised that sourcing the risk is a relationship-driven activity. Brokers are continuing to drive more and more customer adoption, so the underwriter is doing risk measurement and relationship building.
We want to help the underwriter make a faster, more efficient and more effective decision, not to replace the underwriter. We're heavily on that side, more than we were a year ago, because we've been educated about the different functions an underwriter has.
That's playing through in your ability to sign new clients, including MS Amlin, Markel, AXA XL, C-Quence and more recently Convex. Are there other companies that you're working with?
We recently worked with an MGA called Unicorn, which reflects a shift in market position we've made to focus on insurance companies that want to become tech-enabled.
That's one of the unifying threads of Convex and C-Quence. They have a completely clean stack; they don't have any legacy and for that reason they can be more visionary. They can gather data and interactions and start to measure what the characteristics of good underwriting decisions are. They can become very data-driven.
You have the ability to provide analytics on the Cytora platform or by sitting on other companies’ technology. Do you have examples of people you're working with to deliver the analytics?
To be flexible to work with you have to be able to integrate into other systems. Our customers typically have workflows in things like Rulebook, Salesforce, or an E-Trade platform like Acturis. Many of them have Excel-based pricing models that they have built internally.
We have APIs that integrate into all of these, and many of those are pre-integrated. All the customer has to do is turn it on and it's there, which reduces the time-to-value for them. Our integrations team focuses on integrating with all of these platforms, which means we can cover more of a customer's business.
How helpful are the platform companies in selling Cytora?
We have just announced an integration partnership with Duck Creek and they're actually selling this as part of their own go-to-market. We're yet to see how successful that approach will be, but it's an efficient way to go.
The more you connect into these platforms means you can access customers on a much wider scale than before. That's important for a start-up because the efficiency of your customer acquisition is a key determinant of your growth.
With all the demands of being a CEO, how have you managed to keep building your own knowledge and stay fresh in terms of technology?
I tend to hold my viewpoints quite loosely on one level because I think every entrepreneur is always wrong with most things.
I make sure I surround myself with people who are quite opinionated. I used to be quite bad at getting feedback and wouldn't have asked for it, but I do that quite a lot now because it's useful when people say, " I think we're wrong here," or, "this could be improved.”
You took part in the Plug and Play accelerator. What's your view on the benefits of accelerators and incubators versus going it alone?
Incubators are valuable when you can learn differentiated market knowledge in terms of what customers want, and also when you get credentialisation from them. One of the hardest things for an early start-up in the enterprise space is to show you have credibility.
The Cambridge Incubator was really important, and Plug-and-Play was very useful from a sociological perspective, to see the grit and pugnacious vision of American entrepreneurs. Seeing that sense of belief really helped us be successful.
What big themes are you focusing on in 2020?
The big one for us is making some quite deliberate changes to our product and go-to-market to become scalable globally. We're doing that because we're being pulled by our customers to cover more of their business and more of their footprint.
We want to end the year by having a global presence. We're excited about doing that and are focused on the opportunity ahead of us.
We’re delighted to have you as a core member of InsTech London and thank you for your support. We’ll look forward to hearing more from you over the next 12 months.
It’s a pleasure. I’ll look forward to it.
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